The Maritime Litigation Roundup is published by Seward & Kissel LLP and covers decisions of interest in judicial, administrative or arbitral bodies as well as notable regulatory or other newsworthy developments in the space. For any suggestions on future coverage or should you like more information about the matters addressed, please contact Brian P. Maloney at maloney@sewkis.com.
Seward & Kissel LLP is excited to introduce the Maritime Litigation Roundup, a new periodic survey of notable maritime litigation caselaw and other developments.
This month, we are covering a trio of notable decisions in the space: First, we examine the interplay between admiralty and bankruptcy jurisdiction as the Ninth Circuit Court of Appeals revisits the matter of Barnes v. Sea Hawaii Rafting; second, the Fifth Circuit Court of Appeals offers a lesson in Poincon v. Offshore Marine Contractors, Inc. on the procedural significance of electing admiralty jurisdiction where more than one choice of subject matter jurisdiction is available; and third, we review the circumstances in Platina Bulk Carriers Pte Ltd. v. Praxis Energy Agents DMCC, where the plaintiff persuaded a district court in the Southern District of New York to pierce the corporate veil between bunker fuel supplier affiliates and permit the matter to proceed to discovery.
•Admiralty and Bankruptcy Jurisdiction – Barnes Part II: The Ninth Circuit Court of Appeals has again weighed in on the matter of Barnes v. Sea Hawaii Rafting, LLC, which touches on the interplay between admiralty and bankruptcy jurisdiction that we have previously written on here.
•On September 22, 2021, the Court issued an opinion from consolidated interlocutory appeals following a bench trial on Barnes’ admiralty claims in this case, which involved district court proceedings arising from an in rem arrest against a Vessel. Barnes also sued his employer and the vessel owners, who later declared bankruptcy.
•The Ninth Circuit ruled on several questions of admiralty and appellate jurisdiction, and notably reiterated its conclusion that the district court’s in rem jurisdiction over the Vessel is not ousted by a subsequent bankruptcy filing. See Slip. Op. at 9 (“[t]he district court [had] exclusive in rem jurisdiction over the [Vessel], and the bankruptcy court [had] no jurisdiction over it.”).
•The Ninth Circuit’s latest opinion cements the proposition found in the Ninth Circuit’s prior ruling in Barnes, issued in 2018, that once in rem jurisdiction is conferred, a subsequent bankruptcy will not discharge a maritime lien or divest the admiralty court of jurisdiction. This also contrasts with aspects of the Second Circuit’s prior ruling in Universal Oil Ltd. v. Allfirst Bank (In re Millenium Seacarriers, Inc.), 419 F.3d 83 (2d Cir. 2005) where that court’s decision had turned on the lienors’ consent to bankruptcy jurisdiction by voluntarily submitting their claims.
•The Ninth Circuit found a number of issues were unreviewable at this stage of the case because they were not final appealable orders, or otherwise fell outside the scope of the district court’s substantive decisions “determining the rights and liabilities of the parties to admiralty cases” under 28 U.S.C. 1292(a)(3), suggesting, perhaps, that there may yet be more to come in this proceeding.
•The Importance of Electing Admiralty Jurisdiction: On August 13, 2021, in Poincon v. Offshore Marine Contractors, Inc., the Fifth Circuit Court of Appeals issued an opinion with an important reminder for plaintiffs whose claims fall within both admiralty and civil federal jurisdiction – namely, that a Plaintiff must elect admiralty jurisdiction, due in part to the important consequences that flow from that election.
•Specifically, the Fifth Circuit found that “[w]hen a plaintiff asserts claims that can be brought under either the civil or admiralty jurisdiction of the federal courts, the plaintiff must elect admiralty jurisdiction under Federal Rule of Civil Procedure 9(h) to proceed in admiralty. . .[t]he complaint does not have to explicitly cite to Rule 9(h), but it must at least include ‘a simple statement’ invoking admiralty jurisdiction. Slip Op. at 5 (citation omitted).
•The election of admiralty jurisdiction by a plaintiff when there is a choice of civil or admiralty jurisdiction has important consequences, including that there is no right to a jury trial in admiralty cases. In addition, the admiralty election permits special practice features in the Federal Rules of Civil Procedure (see, e.g., Fed. R. Civ. P. 14(c), 38(e), and 82) as well as the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions.
•In Poincon, the issue was a question of appellate jurisdiction and how the Fifth Circuit could hear the dispute. 28 U.S.C. 1292(a)(3) permits interlocutory appeals as of right, in order to determine the rights and liabilities of the parties “in admiralty cases.” However, because the plaintiff had not made such an election, the Fifth Circuit’s jurisdiction was based only on the district court’s certification of the matter for an interim appeal under Fed. R. Civ. P. 54(b). Had the district court not made that certification, the plaintiff’s failure to elect admiralty jurisdiction at the outset of the case would have resulted in the dismissal of the appeal for lack of jurisdiction, until a final order after trial was submitted in the case.
•Alter Ego Claim Survives Motion to Dismiss: On September 10, 2021, in Platina Bulk Carriers Pte Ltd. v. Praxis Energy Agents DMCC, Judge Naomi Reice Buchwald issued an opinion that denied a motion to dismiss a complaint seeking to hold two bunker fuel supplier affiliates (Praxis Energy Agents LLC (“Praxis U.S.”), and Praxis Energy Agents Pte Ltd. (“Praxis Singapore”)) responsible for the debts incurred by a third entity, Praxis Energy Agents DMCC (“Praxis Dubai”), under a corporate alter ego theory in a fuel bunkering transaction where the vessel owner was made to pay the physical supplier’s expenses after Praxis Dubai, the intermediary in the transaction, failed to pay its sub-contractor. The Court found that the allegations of the amended complaint plausibly established a prima facie case to pierce the corporate veil between the three defendants, allowing discovery to proceed on that issue.
•Specifically, the Court found that the allegations and reasonable inferences upon the record supported findings of overlapping personnel, that all of the companies held themselves out as conducting the “exact same business” on a “single web address” and that there were allegations that one company likely used its corporate sister company to shelter assets while evading obligations to its vendor. Slip op. at 11-12.
•Alter ego claims are notoriously fact-specific, and it is therefore important to observe appropriate corporate formalities across different components of a business group or as between parent and subsidiary entities to avoid one corporate entity or a key manager from taking on the liabilities and obligations of other entities within the group.
•For cases that proceed to discovery, counsel should be laser-focused on whether there is evidence that (1) the corporate entity in question was used to perpetrate a fraud or where there was other intent to circumvent statutory or contractual obligations, (2) what injustice occurred by use of the corporate form and (3) whether there is a showing of “total dominion” by the controlling corporate entity where the subservient entity manifests no separate corporate interests of its own.
•Seward & Kissel has had deep experience in defending veil-piercing and alter-ego claims, defeating a similar alter ego theory in Oregon and Texas district courts where there was an absence of evidence to support those allegations, a result that was affirmed after appeal in the Ninth Circuit in its March 29, 2021 opinion in Pacific Gulf Shipping Co. v. Vigorous Shipping & Trading S.A. (finding plaintiffs “came away ‘empty handed’ from discovery”). Slip op. at 16-17.